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William M. Drozdiak, president of the American Council on Germany, says the emerging “grand coalition” government to be headed by Angela Merkel of the conservative Christian Democratic Union must face “enormous” challenges, but because of the major economic crises in that country, “the grand coalition, in a way, is a government of national emergency that many Germans want to succeed.”

He says that while Merkel will probably ease tensions with the United States, there is unlikely to be any major shift in foreign policy, such as sending sending of German troops to Iraq. Merkel will probably cool relations with Russia, whose leader, President Vladimir Putin, had been quite close with her predecessor, Chancellor Gerhard Schroeder. The thrust of her policies, however, will have to focus on collaborating with her Social Democratic Party partners in finding ways to restore Germany’s economic power, Drozdiak says.

He was interviewed by Bernard Gwertzman, consulting editor for cfr.org, on October 11, 2005.

Several weeks have gone by since the parliamentary elections ended in a virtual stalemate with the Social Democratic Party’s (SPD) Gerhard Schroeder and the Christian Democratic Union’s (CDU) Angela Merkel each claiming they should be the chancellor. Now a deal has been struck: Angela Merkel will be the first woman chancellor in German history but the SPD will get eight of the fourteen cabinet posts in this grand coalition. What does this say about the ability of Germany to move forward?

The challenges are enormous, but the fact that this will be a “grand coalition” with a solid majority in both houses of parliament suggests that if [the CDU and SPD] do cooperate and find the right degree of compromise, they can achieve quite a bit. The fact that both parties are natural rivals will stand in the way, but there is recognition in both parties that, in a sense, they are doomed to succeed because the alternatives are so much worse. One risk is that [this coalition government] will strengthen the extremist tendencies in German politics, which is something no one wants to see. Secondly, the fact that Germany, as the world’s third-biggest economy and the biggest in Europe, must absolutely return to a path of growth in order to reduce the high level of unemployment, and also to get Europe back to contributing to the world economy. To that extent, the grand coalition in a way is a government of national emergency that many Germans want to succeed. The latest poll suggests that about 54 percent of all Germans see this as the best possible hope of getting Germany out of its political and economic stalemate.

Just review again the degree of economic problems the Germans are having.

Because of the high labor costs, a lot of jobs have been outsourced, going overseas, or moving to lower-wage countries such as Poland or Slovakia, where a lot of the automobile manufacturing jobs are now moving. Among all Western countries, Germany has the lowest proportion of working people to the total population. The latest figures show about 26 million out of a total population of 82 million have full-time jobs. That means one person is supporting three people in the population. And given the generous social welfare benefits, this simply can’t be sustained. Secondly, the force of globalization means that in order to attract investments for the future, Germany is going to have to have a more flexible labor market. This will be the biggest challenge for the Social Democrats—whose party is rooted in the working class—whether they can find acceptable compromises with Merkel’s Christian Democrats, who entered the election campaign on a platform of radical reforms of the labor market.

But of course, the Social Democrats have been making some economic reforms of their own while they were in power, and I guess that contributed to Schroeder’s defeat, right?

Well, it put him at odds with important factions in his own party. It caused the alienation of a lot of the left-wing of the Social Democrats. In fact, it provoked his party nemesis, Oskar Lafontaine to leave the party and start up a party of his own called the Democratic Left, which along with the former Communists got over 8 percent of the vote and that contributed to the defeat of the Social Democrats. But the fact that Schroeder started these painful reforms provides a certain degree of momentum. Both parties now realize this should be the starting point of where the new government needs to go. To that extent there’s a certain degree of consensus.

I see from the German press that, as part of the coalition deal, the CDU will control the economy, interior, defense, agriculture, education, and family portfolios and the SPD will have foreign affairs, the finance ministry, labor, justice, as well as health development and cooperation, transport, and environment. Will that give the CDU enough leverage to work out meaningful reforms or are they going to be stalemated on these issues?

Well, in a way the onus of responsibility will lie with the Social Democrats because they are going to have eight out of the fourteen ministries, which means they will have to carry much of the burden of these reforms in the eyes of the public. So to that extent, while the political pundits are saying Merkel gave up a lot and some people in her party say she gave up too much in order to get control of the chancellery, in a way this could be a clever tactic on her part in order to get greater cooperation from the SPD. The SPD will have, as you say, control of the finance, labor, and health ministries. In all three of those, that’s where reforms are vitally needed. So if you can bring the Social Democrats along on these reforms, given the fact that the grand coalition has strong majorities in both houses of parliament, this in a way could make achievement of some of these reforms slightly easier.

What kind of a chancellor is Merkel apt to be? She was regarded as an apathetic campaigner and that contributed to the small majority she finally ended up with. Is the public really interested in backing her?

I think given the changes in the political system, she’s going to find her policymaking rule extremely limited. In a way, the barons in the two big parties will be able to set the tone for the policies that will be pursued by this government. However, as we saw under Chancellor Schroeder, the chancellor’s position has greater leeway in terms of affecting public opinion, and also, curiously, greater control over foreign policy than ever before. It’s interesting how the last couple of years Schroeder managed to diminish the role played by Joschka Fischer, the foreign minister from the Green Party, despite his popularity. I think Merkel will also try to put her stamp on foreign policy given the fact that her hands may be tied on domestic policy.

Talking about foreign affairs, I always thought it interesting that in Germany the leading coalition partner gets the foreign ministry slot, not the winner. You would think the chancellor would want to run his or her own foreign policy but it has to do it through a coalition partner. Who’s likely to be the foreign minister?

It hasn’t been formally decided yet. But I’ve heard, in talking with people within the SPD in the last day or two, that Peter Struck is the leading candidate. He was the former defense minister and he could move over to the foreign ministry.

How does he get along with people in Washington, for instance?

He was initially received with a great degree of skepticism. However, he has performed quite well as defense minister. He has expanded Germany’s role in Afghanistan to a surprising degree. Germany now has the largest contingent of foreign forces outside the United States there. He’s been quite supportive in Afghanistan despite German refusal to send any troops to Iraq. The country has been quite supportive of fighting the war on terror in Afghanistan. He was also quite critical of Spain’s decision to pull troops out of Iraq after the Social Democrats took over the government there, and he said that was very destabilizing. So that suggests that he’s got a more pragmatic view about foreign policy.

But as I said, what will be interesting to see is how he will coexist with Merkel. I think she will make some significant changes in foreign policy given her own different attitudes from those of Schroeder. I think we’re likely to see her take a more skeptical view toward Vladimir Putin, the president of Russia, who had struck up a close friendship with Schroeder. In fact, they had recently concluded a pipeline that will bring greater oil supplies to Germany. This has antagonized some of Germany’s neighbors, notably Poland. I think Merkel will try to improve the relationship with Poland and distance herself from Russia. She’ll also try to bring about a more friendly tone or relationship with the United States. I think she differs with Schroeder over the question of lifting the arms embargo against China. Schroeder was very much in favor of doing so and Merkel, I believe, will be opposed to it. And lastly, I think she’s more inclined to strike up a tactical alliance with [British Prime Minister] Tony Blair rather than with [French President] Jacques Chirac. In terms of European Union [EU] policy or getting the EU back on track, I think she’s likely to align herself with Blair in trying to push through some reforms on how the EU structures its budget and its farm spending.

One issue that looms with the United States is over Turkey. She’s opposed to Turkey’s entry into the European Union, right?

That’s right. But I don’t think that will be a major issue. The negotiations between the EU and Turkey began on October 3. Most people estimate that it will take at least ten or twelve years to resolve. I think this obviously is well beyond the life span of a Merkel government. In contrast to Schroeder, who supported Turkey’s membership in the EU, she has said she only wants a privileged partnership. I think she’s likely to soft-pedal on that issue and I don’t think it’s going to be a major impediment to relations with the United States, at least at this stage.

I guess we can expect an early visit by her to Washington, right?

I think she’ll want to do that, following visits with a couple of her EU partners, perhaps France, Poland, or Britain at the outset. But she will definitely want to make an early visit to Washington to demonstrate her eagerness to improve the relationship. By all accounts, she has had some very friendly talks already with President Bush in a get-acquainted sort of way.

Does she have a foreign policy brain trust?

Yes, I would think that one of the leading advisers to her in this regard as an elder statesman of the party is Wolfgang Schauble, who made a trip to Washington a few weeks ago in which he met with [Secretary of State] Condoleezza Rice and also with the president, briefly, to reassure them about the outlines of a CDU foreign policy under Merkel. I think he’s likely to continue playing an effective role as sort of a conciliator between Berlin and Washington.

Do we know who’s likely to be her defense minister from CDU?

Within the CDU, actually Schauble could be a candidate for that. But I think, again, regardless of who is named, I don’t think that will cause any real change in Germany’s defense posture. I think there’s no question that Germany will not be sending troops to Iraq. But I think they will extend and continue to play a fairly effective role in Afghanistan—more than other European allies.

The key post, I guess, is the finance minister. Is that the same as the economic minister?

Well, the economic minister will be Edmund Stoiber, who is head of the Christian Social Union, the Bavarian sister party of the CDU. He, as the minister president or governor of Bavaria, has had a very successful economic record. The area around Munich is one of the most economically vibrant parts of Germany, particularly when it comes to industry and technology. So he’s been appointed to try and replicate that kind of success on a nation-wide kind of scale. The Finance Ministry will be in the hands of the Social Democrats. That Finance Ministry will lead the way to any reform in the tax system, which many people think needs to be overhauled at this state.

But that’s going to be very tough to accomplish, given the differences over that issue, right?

Yes. While everybody agrees that [the tax system] has to be reformed, there is no single view on how that should be done. Merkel got into trouble in the campaign when she brought on board an adviser who advocated a flat tax. Schroeder attacked her for that.

Why is this so important?

Both parties realized that they will be held accountable if they don’t succeed and that their failure could feed these extremist tendencies. And I think this is one of the key factors that will push them to try and succeed.

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